Tuesday, February 23, 2016

Another look at Barrick Gold:

Back in November 12, 2015 on a blog post, I noted the shares of Barrick Gold Corporation (ABX) on the TSX trading at $10.00 – up 0.32 (3.40%) on good volume of 3,725,421 shares. The December gold contact was down slightly on the day.
At the time I noted a left shoulder (LS) – a head (HD) and the incomplete right shoulder (RS) along with a tilted line is the neck line which – when extended to the right marks the price (then $10.40) Barrick needed to break above on volume to complete the trend reversal. Technical analysts should not react to a reversal pattern until complete – but Barrick seemed to be building an inverse head & shoulder pattern since last July along with a big volume increase.

Today on a weekly plot of Barrick we see the big volume increase from the break above the inverse head & shoulder pattern along with a break above the 40 week (or 200 day) simple moving average. On a P&F chart I see some overhead at $21 - $22 so why not take some profits there and pick up a few sector laggards? THO for now.

Wednesday, February 17, 2016

Elliott Wave and where to start the count:

Elliott Wave is basically an extension of one tenant of Dow Theory and the three phases of a bull market. According to Charles H. Dow (1851–1902), the first advance is the accumulation phase – often thought to be a bear market rally. The second phase is the recognition phase where there is broad leadership and participation, and finally the third and final speculation phase which is usually accompanied by thinning leadership.

An Elliott Wave bull phase would have 5 waves (impulse or numbered phase) and a bear phase would have 3 waves (corrective or lettered phase) – for a total wave count of eight. When the pattern is completed it is repeated but not necessarily in time or price magnitude

The problem most analysts have with Elliott Wave is where to start the wave count. As the old cliché goes, you can't know where you are going until you know where you have been.

If you get lost in a wave count wait for the night your car breaks down on a deserted road and your cell phone is dead. Simply get out a chart and begin an Elliott Wave count – a stranger will suddenly appear to correct you – ask the stranger for help.

In my Berkshire wave count I began at the March 2009 financial crisis low – I trust you agree


Wednesday, February 10, 2016

Share Buy-Backs & Flawed Analysis:

A refreshing item authored (Associated Press) By Bernard Condon, AP Business Writer – header “ Companies lose billions buying back their own stock Big companies have lost billions buying their own shares”

Here a few clips – keep in mind that I am picking the context that supports my view that share buy-backs are just accounting smoke and mirrors.

Quote: “(over the past three years) Many corporations would have been better off investing that cash in an index fund instead of their own stock. The overall market rose 39 percent over the same period. The companies could also have distributed that cash to shareholders, allowing them to spend what is, in the end, their money.

And it's not just a few big corporate losers accounting for all the pain. The group includes 229 companies in the Standard and Poor's 500 index, nearly half of the companies in the study prepared by FactSet for The Associated Press.

When a company shells out money to buy its own shares, Wall Street usually cheers. The move makes the company's profit per share look better, and many think buybacks have played a key role pushing stocks higher in the seven-year bull market.

But buybacks can also sap companies of cash that they could be using to grow for the future, no matter if the price of those shares rises or falls.

"Whenever you see a buyback, the company always says, 'We think our stock is cheap,'" says Nicholas Colas, chief market strategist at brokerage ConvergEx Group.

They are sometimes so confident that they take out enormous loans just to buy more and more shares. That those shares have now plunged in value is something Colas calls a "great irony" of the bull market.

Among the companies with the biggest paper losses are struggling ones that bought after their stock fell, only to watch prices drop even more. Macy's, the beleaguered retailer, is down $1.5 billion on its purchases, a 26 percent loss. American Express has lost $4.1 billion, or 34 percent. As the price of oil plunged, driller Chevron racked up $2.8 billion in paper losses, or 28 percent.

"The company doing the most buybacks is often not investing enough in its business," says Fortuna Advisor CEO Gregory Milano, a consultant who has written several studies criticizing the purchases. He says most buybacks are "financial engineering" and a waste of money.

The study looked at 476 companies in the S&P 500 index, leaving out the index members that split off parts of their businesses during the period. Among the findings:
Nearly a third of the companies studied, 153 in all, lost $100 million or more on their purchases in three years.

MasterCard has the biggest paper gains from buybacks: $7.9 billion. IBM has the biggest paper losses: $9.8 billion. IBM says it isn't neglecting long-term investments and notes that the money it spent on R&D, big projects and acquisitions last year was triple what it spent buying its stock.

Companies often buy at the wrong time, experts say, because it's only after several years into an economic recovery that they have enough cash to feel comfortable spending big on buybacks. That is also when companies have made all the obvious moves to improve their business — slashing costs, using technology to become more efficient, expanding abroad — and are not sure what to do next to keep their stocks rising.

"For the average company, it gets harder to increase earnings per share," says Fortuna's Milano. "It leads them to do buybacks precisely when they should not being doing it.

And, sure enough, buybacks approached record levels recently even as earnings for the S&P 500 dropped and stocks got more expensive. Companies spent $559 billion on their own shares in the 12 months through September, according to the latest report from S&P Dow Jones Indices, just below the peak in 2007 — the year before stocks began their deepest plunge since the Great Depression.

End quote: the author Bernard Condon can be reached at http://twitter.com/BernardFCondon. His work can be found at: http://www.bigstory.ap.org/content/bernard-condon